Business leaders believe speaking against Scottish independence will draw
wrath from on high

Edinburgh is a village. In Scotland’s capital, with its elegant Georgian New Town and medieval Old Town lying in the shadow of the castle, the professional classes live in proximity, swap gossip and tend to know each other’s business.

But as Scotland gets ready to vote on independence in September next year, one subject above all others prompts business leaders, entrepreneurs and bankers here to lower their voices and look over their shoulders to check that they are not being overheard.

Ask them about the risks of breaking up the Union and it rapidly becomes apparent that they are terrified of getting caught speaking publicly about concerns, in case they are targeted for retribution by Alex Salmond’s nationalist administration which runs devolved Scotland. The climate of fear is extraordinary and quite sinister.

There is the concern about incurring the wrath of SNP politicians, in terms of smear campaigns instigated in the Scottish parliament and publicised in the media. They also worry about potential consumer boycotts by nationalist voters who might not like their pro-Union views.

Says one nervous chief executive: “Most business leaders are keeping their heads down on this issue mainly due to the aggressive reaction any expressed negative opinion provokes from Alex Salmond and his cohorts.”

Adds another leading businessman: “It is disgraceful what is going on, with SNP politicians putting in threatening phone calls to anyone in business who dares to ask legitimate questions, accusing them of being unpatriotic and trying to kill off criticism.”

In recent weeks, ministers in the UK Government have pleaded with more business leaders to speak up.

Says a Whitehall source: “Part of the problem is that some senior business people who are anti-independence are calculating that the Nationalists will lose and the Union might be safe, so why take the risk of getting involved? That’s a very dangerous view. This referendum is far from being sewn up.”

Although polls record a lead for the Better Together campaign run by Alistair Darling, the former chancellor, there is an expectation that the race will get much closer next year.

Mr Salmond is a skilled campaigner who has been behind in the polls in past elections and yet emerged triumphant. Business leaders know they may have to deal with him afterwards.

The Scottish First Minister has dedicated his life and career to winning a vote on separating Scotland from England.

Having got this far — winning an overall majority for the SNP at the last Scottish Parliament elections and engineering a referendum on the Union — Mr Salmond will let nothing stand in his way. He does not want opposition from the business community that might sway voters worried about jobs and prosperity.

However, as the referendum draws near, the need for answers to the awkward questions about the impact on the Scottish economy grows more urgent.

Last week, some of the UK’s big supermarkets dared to raise their heads above the parapet.

One senior executive from an unnamed supermarket warned that in the event of a Yes vote, Scottish consumers faced the possibility of higher food bills. The executivetold the Financial Times: “We would treat it as an international market and act accordingly by putting up our prices. The costs of distribution are much higher in Scotland but at the moment that gets absorbed by the UK business.”

The supermarkets — which employ tens of thousands of Scottish workers — were merely pointing out the practical reality that their supply chains and pricing policies are built on there being a United Kingdom. In the wake of the warning, Asda and Morrisons confirmed they would be unwilling to absorb higher costs, while Tesco and Sainsbury’s refused to be drawn further into the row.

The response of Mr Salmond’s “Yes” campaign to this intervention was pure rage. Even when the chief executive of Asda explained his position in calm terms, in another newspaper article, the SNP leadership claimed that his remarks proved he had retreated, when he had not.

Other nationalists rounded on the companies. Stan Blackley, a member of the Yes campaign’s executive, said on Twitter: “Wouldn’t it be great if Tesco, Sainsbury’s, Morrisons [and] Asda just left Scotland after Yes vote.”

An SNP councillor in Glasgow added that it was “time to boycott” the firms. The storm came as no surprise to Iain McMillan. As the director of CBI Scotland, which speaks on behalf of businesses, he is well aware of the concerns of senior executives ahead of the vote.

Mr McMillan says that in such fraught circumstances it is understandable businesses are worried about talking publicly. The leaders of prominent businesses have been contacted by Scottish Government politicians, he says, and warned not to criticise Mr Salmond’s independence plans.

“The referendum is not normal politics, it is a fight to the death with a lot at stake for the politicians. Businesses understand that the referendum will be a very dirty fight and they are generally worried about getting caught in the crossfire.”

But Mr McMillan is prepared to speak out: “CBI Scotland believes that the nations of the United Kingdom are stronger together. And the companies that we have spoken to are very concerned about the costs and risks of independence.”

He says that the SNP has still to answer the fundamental questions.

“It’s not clear what the Scottish currency would be. SNP ministers have asserted that they would create a currency union with England, but the Chancellor has made it clear that he may not allow Scotland into a currency union.

“And then there’s concern about Europe. The conditions of our membership are unknown.

“The risk is huge uncertainty and it would mean extra cost for business.”

It would certainly involve more bureaucracy for firms that currently employ staff and do business on both sides of the border, as under independence, Scotland would become a separate jurisdiction for tax and regulation.

The engineering business Linn, built by Ivor Tiefenbrun, is just the kind of successful Scottish firm that would have to deal with the fallout.

Based outside Glasgow, Linn makes world-beating hi-fi but only 1 per cent of its sales are in Scotland.

Mr Tiefenbrun says voters should be aware of what is at stake: “Many manufacturing, and indeed many service sector companies, largely trade in parts of the UK outside Scotland. They would be faced with a lot of additional complexity and cost if we were independent.”

He is robustly anti-independence: “The Nationalists have yet to identify any real upside benefit for Scottish business from separation.”

He fears the implications are not yet fully understood: “In the event of separation we Scots would lose good will as well as business, education, scientific, research, defence and security arrangements, and government work with the rest of our broken Union.”

But it is in another area that Scotland may have the most to lose, although so far it has attracted little attention in the debate north of the border.

Despite the financial crisis of 2008 — and the near collapse of two Scottish-based banks — financial services are still big business in Scotland.

The country is home to the state-owned Royal Bank of Scotland, while Lloyds is also registered in Edinburgh. The banking group owns Scottish Widows, the life, pensions and investment company.

The headquarters of Standard Life, the savings and investments firm, is in Edinburgh too, as is the bank run by Tesco. What all of these businesses have in common is that most of their customers are in England.

After independence, would all those customers want to entrust their pensions and savings to foreign companies stationed in a country facing uncertainty over something as basic as its currency?

Owen Kelly, the chief executive of Scottish Financial Enterprise, the trade body which promotes the industry, says that banks and investment firms are in a similar position to the supermarkets.

“There is a general craving for more information. But I think dividing one tax and regulatory jurisdiction would bring complexity. Of that I have no doubt.”

The Nationalists claim that none of this is problematic, and even assume that after separation the Bank of England will remain as the so-called lender of last resort to Scottish-based banks.

This means they envisage taxpayers in the rest of the UK bailing out Scottish banks if they get into trouble. The chances of English taxpayers tolerating such an arrangement are probably vanishingly small.

A source in the Treasury says: “The Bank of England can only be lender of last resort to banks that are in the UK. It’s nonsense to suggest otherwise.”

It remains to be seen whether the banks would even remain in an independent Scotland. RBS is 82 per cent owned by UK taxpayers.

A senior Treasury source says that no detailed scenario-planning has been done for what would happen to RBS after independence, because ministers and officials expect a Yes vote.

However, he said that dividing RBS would be part of any negotiations about how the assets and liabilities of the UK might be allocated in the event of independence.

“After that it would be left as a commercial decision to the management of RBS.”

But he added: “You can’t have the majority of the shares held by the UK Government and then be headquartered in what would be a foreign country. It is obvious what would happen.”

Corporate history suggests that when a headquarters moves, thousands of jobs tend to go with it. As result, there is extreme nervousness at RBS about the situation.

Mr Salmond is a former RBS economist, who remains loyal to the bank and would be furious if there was a hint of it leaving Edinburgh and relocating to London after 2014.

The public position is that the bank has no position on independence and that it will never be headquartered outside Scotland, where it has been based since its founding in 1727. But behind the scenes shareholders are pushing RBS bosses to explain its “plan B” in the event of a Yes vote.

A member of the RBS board said: “Very big banks tend not to be headquartered in small countries, that’s all I’ll say.”

The Yes campaign rejects such concerns. It also denies that it is fostering a climate of fear ahead of the referendum, pointing out that 900 businesses of varying sizes have joined Business for Scotland, its sister organisation.

The campaign also insists that the plans to keep the pound — and the Bank of England as the institution that would bail out Scottish banks in the event of another financial crisis — is workable.

A spokesman said: “Everybody accepts that the only thing that makes sense is the pound sterling.”

However, the campaign says that in the first election campaign in an independent Scotland, the various parties would make fresh proposals. That could mean switching to a new currency, or not.

For voters and businesses in Scotland considering the options, and for taxpayers in the rest of the UK, it looks as though a Yes vote would involve a lot of uncertainty.